Tech Sector Hungry For State Aid

The clout of Connecticut's technology sector has generally been small, like so many of its companies.

Technology executives had hoped to change that impression this year by landing public support - state tax breaks, incentives and economic development money - on a level not previously seen. But since Feb. 9, when Gov. M. Jodi Rell revealed her budget proposal for the next two fiscal years, the tech sector has found itself fighting just to keep what is has.

There are some signs of advancement, such as in the life sciences, where Connecticut bioscience officials have Rell's support for $20 million from state coffers for stem cell research in a multiyear deal.

The medical device manufacturers are also going to the legislature this year, seeking $50 million to $100 million to build the industry's presence in Connecticut.

But Rell also cut existing tax breaks benefiting technology companies by an amount equal to the amount of the stem cell funding. Lobbying continues on many fronts.

Still, it takes moxie to go after this kind of money in a year in which Rell faces a $1.2 billion budget gap and has proposed a combination of spending cuts and tax increases to close it - including some measures that would target technology firms.

Technology officials said that going after more state dollars is necessary if Connecticut wants to compete for new companies and the well-paying jobs that they bring, not to mention the hundreds of millions in venture capital that they attract every year.

The $20 million sought for stem cell research is designed to lure or keep researchers working in Connecticut on the cutting edge of a promising but untested area of science.

High-profile industry members such as Yale and Pfizer, organized through CURE, lend monetary heft and political weight to such requests for state largesse, which can benefit everyone from the research universities and large pharmaceutical companies to the tiny biotechnology startups.

In stem cell research, it's not just about money, but opportunity. Advocates say that Connecticut lost a chance in 2004 to be among the first states to create a stem cell program when the legislature failed to adopt a bill affirming Connecticut's support.

There will only be so many of these centers, and they are forming now. If a state wants to have researchers in this cutting-edge field, it has to act quickly, they said. Under the policies of President Bush, federal funding cannot be used for stem cell research, with a few limited exceptions.

Rell supports the research with some funding, and this support is significant coming from a Republican governor in a budget year that is expected to be particularly tight.

Matthew Nemerson, chief executive of the Connecticut Technology Council, said that Rell's support for stem cell research is welcome, but hardly enough.

"There's no seed capital, there's no early-stage capital and there's no infrastructure in the state for an entrepreneur. Other states just really roll out the red carpet," Nemerson said.

On top of the stem cell funding, CURE seeks to have a portion of the income tax paid by new biotech employees returned to their employers to encourage new job creation. Officials also want to see corporate tax benefits extended to limited liability partnerships and limited liability companies, because research and development credits do not extend to these kinds of small firms.

Fail to provide stem cell funding in Connecticut, and neighboring New Jersey could easily lure coveted researchers from Yale or UConn, advocates for the funding say. The researchers take with them additional funding and the staff that they support, as well as any future potential for spinning off research into new companies.

The same goes for the medical device industry, which employs about 5,200 people in the region and could become a larger player in the state's economy. But that growth could easily stagnate if the region loses too many of its precision manufacturing workers, and if new companies aren't encouraged to form here.

That's why Joseph Bronzino, an engineering professor at Trinity College and president of BEACON, the Biomedical Engineering Alliance and Consortium, wants the state to act now.

"If we don't take the advantage in the next 5 to 10 years, we will be looking at the behind of other regions that went in that direction," he said. "We only have so much time."

It's still an uphill battle for many tech executives, however.

As they are learning, what the state giveth, it can also taketh away.

Rell, for example, despite her stem cell support, proposed ending established research and development tax credits that benefit emerging companies.

After Rell presented her spending plan in early February, a frustrated Pescatello said that biotech companies need those credits to nurture them through the money-losing early years of a company's development.

"This sort of pulls the rug out from under them," he said.

The Land of Steady Habits has also never been a place where change comes easily. Many tech companies are comparatively young and small, and they lack the influence and budgets of their larger brethren in aerospace, insurance and financial services, the traditional foundations of the state's economy.

This has meant that the General Assembly in recent years felt free to raid money managed by its quasi-public venture investment agency, Connecticut Innovations Inc.

The agency contributed $17.5 million of its capital to help the state balance its books over the past three years. President Victor Budnick said that his organization is looking to finance more technology companies in 2005 after two years of modest activity.

"Our focus is to be back in the market in a sustained way and to look for emerging technology companies that offer high potential," he said. "I would expect 2005 to begin to approach the levels that we were at in the mid-90s. I would expect that we would begin to climb back into the $10 million level."

Pescatello said that Connecticut Innovations has been successful in providing capital and getting positive returns on investments. Often, the early stage or seed money provided by the agency has helped rope in additional investors for a company.

There have been few losses on the investments through the years, and no defaults on loans given out as part of the agency's laboratory construction fund.

Legislators and critics of the tax credits say they are concerned about a lack of accountability in economic development efforts, especially the tax credits, which are not reported publicly and do not require companies to create jobs or remain in the state.

But Brennan said that protecting existing tax credits for research and development is a key priority.